The PCI-Foreign Invested Enterprises 2011 Survey American Chamber of Commerce June 6, 2012, New Saigon World Hotel, HCMC

Transcription

1 The PCI-Foreign Invested Enterprises 2011 Survey American Chamber of Commerce June 6, 2012, New Saigon World Hotel, HCMC Jim Winkler, Ph.D. USAID/VNCI Director Findings taken from the PCI 2011 report, Lead Researcher, Dr. Edmund Malesky

2 Organization of the Presentation Overview of PCI and the role of Foreign Direct Investment in Vietnam Overview of the 2011 PCI Foreign Invested Enterprises (PCI FIEs) survey Key Findings: Profile of FIE respondents Drivers of investment Business environment analysis Implications for Vietnam s investment policies

3 PCI Methodology Annual mail-out surveys to over 200,000 domestic firms since 2006 and 20,000 foreign invested firms since 2010 in all 63 cities and provinces PCI calculation: 60% survey results and 40% hard data PCI assesses and ranks provinces by their economic governance in developing business-friendly regulatory environments for private sector development in 9 areas: 1. Entry costs 2. Land access 3. Transparency 4. Time costs 5. Informal charges 6. Pro-activity 7. Business support services 8. Labor Training 9. Legal institutions

4 PCI 2011 PCI measures actual quality of provincial governance by way of the voice of local firms. PCI 2011 represents the collective voice of 6,922 private firms across 63 provinces PCI-FDI Survey was conducted on a sample of 1,970 foreign invested enterprises across 61 provinces in Vietnam.

5 PCI 2011 Map PCI 2011 Rankings PCI collective voice of nearly 7,000 private firms PCI 2011 median score is 59.15/100, one point higher than 2009 and 2010

6 PCI promotes public-private dialogue for better governance PCI workshop in Quảng Ninh province in live conference to 9 remote districts of Quang Ninh

7 Lao Cai province launched their own website on PCI in Nov 2011:

8 - Slip in PCI ranking from 1 st to 5th topped and concluded the agenda of Mr. Nguyen Ba Thanh, Da Nang Party Chief, when addressing 4,500 local officials on the provincial socio-economic situation on 24 February 2012 PCI tops Da Nang Policy Agenda

9 Observed Convergence of PCI scores over time PCI Min Range Max

10 Impact of Good Governance on Wealth/Growth

11 FDI and GDP 12 FDI inflows as % of GDP, , in Asia Pacific 10 8 Vietnam China 6 Axis Title 4 Thailand Malaysia 2 Indonesia Philippines Korea, Rep Source: World Bank Development Indicators

12 FDI and GDP FDI inflows as % of GDP in Asia Pacific, average Source: World Bank Development Indicators

13 FDI and GDP FDI makes a sizeable contribution to GDP FDI is widely accepted as an important driver of growth Share of GDP Source: GSO State Non-state FDI

14 FDI and Investment FDI is an important source of investment, especially in fiscal and monetary difficulties of Share of investment by ownership Source: GSO State Non-state FDI WTO Accession

15 FDI and export FDI is a key driver for export growth, accounting for over half of export volume Export share by ownership, % 90% 80% % % 50% 40% 30% 20% 10% 0% Source: GSO Domestic FDI

16 FDI and employment 100% FDI is an important source of employment, accounting for over 20% of all the jobs 90% 11.52% 12.44% 14.84% 16.62% 18.11% 19.57% 21.52% 22.84% 22.43% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: GSO, Vietnam enterprise State Non-state FDI

17 Shifting away from manufacturing? There s evidence that FDI is shifting away from manfacturing towards property and finance in recent years Registerd FDI by sector, % 90% 6.36% 14.84% 6.26% 24.58% 80% 70% 60% 50% 42.67% 40.01% 76.67% 45.35% 40% 30% 20% 10% 50.98% 45.15% 17.06% 30.07% 0% Source: GSO Manufacturing Property/construction/finance Other

18 The 2011 PCI FIEs survey The 2 nd annual survey conducted by VCCI and USAID/VNCI Mailed out to over 9,000 registered FIEs in Vietnam based on the list of General Tax Authority Assess FIEs performance and their perception of local business environment Identify challenges and opportunities facing Vietnam in attracting high value added investment

19 Profile of FIE Respondents Survey includes 1,970 Foreign Invested Enterprises (FIEs) from 45 countries, equal to about 16% of those found in the GSO Enterprise Census 75% of FIEs in Vietnam are from neighboring Asian countries (especially Taiwan, South Korea and Japan) Average FIE is relatively small in: Employment : 75% have less than 300 employees 11% have over 500 employees Investment size: 63% licensed for less than $2.5 million capital; 13% licensed for over $25 million 65% are involved in some form of low-end manufacturing; 30% in services sector

20 Country of Origin of Vietnam s FIEs Taiwan South Korea Japan China Viet Nam Singapore USA France Thailand Malaysia Australia North Korea Germany United Kingdom Canada India Netherlands Russia Belgium Indonesia Denmark Italy Norway Austria Philippines New Zealand Switzerland Sweden Spain Laos Israel Cambodia Ukraine Turkey Swaziland Sri Lanka South Africa Poland Panama Finland Czech Republic Cuba Chile Brunei Darussalam

21 Share of Investors by Province Binh Duong Ha Noi TP HCM Dong Nai BRVT Da Nang Hai Phong Bac Ninh Tay Ninh Hai Duong Long An Bac Giang Phu Tho Vinh Phuc Hung Yen Lam dong Ha Nam Binh Thuan Thai Binh Quang Nam Can Tho Thua Thien Hue Quang Ninh Khanh Hoa Binh Phuoc Binh Dinh Phu Yen Lao Cai Ben Tre Lang Son Nghe An Hoa Binh Thai Nguyen Ninh Thuan Nam dinh Yen Bai Tra Vinh Thanh Hoa Quang Tri Ninh Binh Dong Thap Quang Ngai Son La Hau Giang Ha Tinh Gia Lai 6 provinces, cities in Southern Vietnam are among top FDI attractions

22 Convergence in Economic Governance among Successful FDI Magnets

23 Increased Performance Yet Growing Pessimism among FIEs Performance improved: Gross sales revenue in 2011 was $1.3 mil, up $300,000 compared to 2010 (biggest increases in manufacturing) Profitability on invested capital increased from 11% in 2010 to 22% in 2011 Yet, FIEs were more pessimistic about investment plans for the next 2 years 39% were optimistic about expanding business compared to 66% in 2010 Pessimism was most pronounced in manufacturing sector (only 33% planed to expand)

24 Profitability Manufacturing Construction Service Agriculture Natural Profit/Capital Investment (median) (%) Profit/Total Sales in 2010 (median) (%) Firms with losses in 2010 (Calculated) (%) Firms with losses in 2010 (Self-Reported) (%) Performance of 2011 PCI-FIE Respondents Sales Manufacturing Construction Service Agriculture Natural Total sales of median firm (Million of USD) Median sales per unit of labor (1000s of USD) Expenditures Manufacturing Construction Service Agriculture Natural Total expenditures of median firm (Million of USD) Median expenditures per unit of labor (1000s of USD)

25 Limited Spill-Over to Domestic Private Sector 84% are 100% Foreign Owned (same as 2010 PCI FIE survey) FIEs purchase 57.5% of their intermediate products from overseas; only 40% sourced locally Outputs of FIEs primarily destined for export 46.7 % of all firms and 57% of manufacturing enterprises export more than half of their output directly or indirectly 15% of all FIEs sell to foreign individuals and companies within Vietnam There are positive benefits for trade-related services => Lack of linkage to domestic private sector limits technology, management, and productivity spillovers

26 Determinants of FDI in Vietnam 32% of FIEs currently in Vietnam considered other countries (mostly Thailand, Cambodia and China), of these 72% selected Vietnam over competition 28% chose Vietnam as part of a multi-country investment strategy FIEs in Vietnam continue to select Vietnam for: Labor cost advantage, political stability, and tax or land incentives and Heavily discount other governance factors (such as intellectual property, access to decision makers, investor protection, and contract enforcement)

27 Why FIEs selected Vietnam?

28 Drivers of Investment 2011 PCI-FIE Respondents FIEs in Vietnam primarily are in low cost operations 65% are involved in some form of low-end manufacturing requiring low cost labor: apparel, shoes, light electronics, and food processing FIEs in Industrial zones tend to select tax and land incentives

29 Factors Driving Selection of Provinces

30 Hold-ups during Customs procedures (by province)

31 Customs procedures FIEs paying less bribes to expedite customs procedures (55% in 2011 v.s 70% in 2010) Yet, custom hold-ups increased

32 Perception of Key Business Environment Indicators Improvements in: Entry costs, Land Tenure, Informal Charges, Transparency (relationships less important) and Infrastructure Areas for further reform: Transparency of legal normative documents, issuance of LURCs, and customs bottlenecks for existing FIEs. IPR enforcement, contracts, and labor quality to attract higher value-added FDI

33 What about US and EU FIEs? Smaller labor size: average of about 200 employees compared to about 250 for the rest Invest less in manufacturing, more in services, finance, banking and insurance Characteristics of the US and EU FIEs in the PCI 20 US EU Whole sample Number of firms in the sample 59 (3.02%) 147 (7.53%) 1970 Legal Form of Investment 100% foreign-invested enterprise 91.07% 82.86% 85.41% Joint venture with a Vietnamese private company 1.79% 8.57% 7.15% Joint venture with a Vietnamese SOE 3.57% 5.71% 3.40% Registered as a domestic company 1.79% 1.43% 2.08% Domestic company w/overseas Vietnamese capital 1.79% 0.71% 0.17% Other 0.71% 1.79% Sector Industry/manufacturing 48.5% 41.5% 65.0% Construction/infrastructure investment 4.6% 4.1% 4.1% Service/commerce 36.2% 50.2% 29.4% Agriculture/forestry/aquaculture 2.4% 0.1% 1.4% Mining/natural resource exploitation 2.2% 0.0% 0.3% Finance/banking/insurance 6.2% 4.2% 1.1% Size of Labor Force Less than % 8.35% 3.57% 5 to % 3.44% 5.10% 10 to % 28.08% 28.43% 50 to % 39.97% 38.00% 300 to % 5.70% 400 to % 4.30% 8.25% 500 to % 2.22% 5.64% 1,000 and over 1.44% 8.87% 5.31%

34 What about US and EU FIEs? Larger investment on average Directly export more Buy more from domestic supppliers stronger linkage with domestic firms Characteristics of the US and EU FIEs in the PCI 2011 Survey Licensed Investment Size US EU Whole sample Under 5 BVND ($2,500,000 US 56.75% 64.35% 55.20% From 50 to under 200 BVND 31.47% 18.99% 26.57% ($25 million USD) More than 50 BVND ($ % 4.97% 6.55% million USD) Median (USD) 1,835, ,775 1,500,000 Major Customer Sold domestically to SOE 2.32% 2.60% Sold domestically to state 2.72% 2.04% 2.04% agency Sold domestically to private 37.96% 22.73% 33.90% individuals Sold domestically to 12.80% 19.10% 14.76% foreigners Exported directly 43.79% 52.55% 44.10% Exported indirectly 2.72% 1.26% 2.60% Supplier SOE 0.29% 3.10% Domestic private company 35.58% 68.12% 38.04% Household business or 0.97% 0.02% 1.69% individuals Produced in-house by your 0.05% 2.43% 13.53% local operations Imported from branches of 16.94% 11.42% 19.89% your corporations in other countries Imported from abroad outside of your corporation 46.45% 17.72% 23.76%

35 What about US and EU FIEs? More profitable compared to the rest More optimistic with higher percentage of firms planning to expand compared to the rest Characteristics of the US and EU FIEs in the PCI 20 Sales US EU Whole sample Total sales of median firm (millions of USD) Median sales per unit of labor (1,000s of USD) Profitability Profit/capital investment (median) 32.77% 27.29% 21.86% Calculated profit/total sales (median) 25.00% 50.70% 33.33% Investment Plans Close business 2.04% 1.59% Considerably reduce size 0.41% Reduce size 2.46% 2.96% Continue operating at present size 58.97% 45.59% 56.22% Increase size of business 11.36% 22.15% 16.59% Considerably increase size of business 29.67% 27.76% 22.23%

36 Policy Implications Focus on Productivity Improvements: Reduce the costs and risks for investors Explore outsourcing of key services to private sector to increase efficiency (e.g. customs) Improve infrastructure connectivity and efficiency Improve Investment Attraction of Higher-value added Investors Improve labor quality and education Enhance quality of governance and public consultation Develop industry-specific strategies and investment promotion strategies Improve overall performance and efficiency of the market economy

37 Questions for discussion Is the data surprising to foreign investors? What regulations and factors are most detrimental to existing FIEs to increase investment and profitability? What regulations and factors are most detrimental to attracting new investors with higher value manufacturing and services?

38 Thank you! Please visit PCI website at or